WTO's Dispute Settlement Mechanism

WTO's Dispute Settlement Mechanism

Updated on 13 December, 2019

GS2 International Relations
wtos-dispute-settlement-mechanism

Recently the WTO's dispute settlement mechanism has become impaired with the departure of two of the three judges on its appellate body following completion of their term.

  • With President Trump skeptical of the WTO’s usefulness and Doha negotiations stalled, the future of global trade rules is in doubt.

About The World Trade Organization (WTO):

  • The WTO is the only global international organization dealing with the rules of trade between nations.
  • At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
  • The goal is to help producers of goods and services, exporters, and importers conduct their business.
  • Over the past 20 years, WTO members have agreed major updates to the WTO rulebook to improve the flow of global trade.
  • The WTO's membership has expanded to 164 members, representing over 98% of international trade.
  • Under the Marrakesh Agreement Establishing the WTO, the Ministerial Conference is to meet at least once every two years.

Dispute Settlement Body of WTO:

  • The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members.
  • It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and (possibly) on a report from the Appellate Body of the WTO. Only the DSB can make these decisions: Panels and the Appellate Body are limited to making recommendations.
  • Such disputes may arise with respect to any agreement contained in the Final Act of the Uruguay Round.
  • The DSB has authority to: Establish dispute settlement panels, Refer matters to arbitration,  Adopt panel, Appellate Body and arbitration reports, maintains surveillance over the implementation of recommendations and Authorize suspension of concessions in the event of non-compliance.

Appellate Body of the WTO’s Dispute Settlement Body (DSB):

  • The Appellate Body was established in 1995 to govern the Settlement of Disputes.
  • It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members.
  • These members are appointed by the DSB to serve for four-year terms.
  • The members can be reappointed once.
  • A panel for appeals comprises three from the seven-member AB.
  • The Appellate Body members shall be persons of recognised authority with demonstrated expertise in law, international trade and the subject matter of the WTO agreements.
  • The Appellate Body membership shall be broadly representative of membership in the WTO.
  • The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel.
  • Appellate Body Reports, once adopted by the Dispute Settlement Body, must be accepted by the parties to the dispute.
  • The Appellate Body has its seat in Geneva, Switzerland.

Dispute Settlement Crisis of  the World Trade Organization (WTO):

    • Ongoing impasse in the appointment of members of the Appellate Body of WTO’s dispute settlement mechanism is exacerbating the issue.
    • At present, there is only 1 member left-out after the completion of the tenure of 2 other members.
    • Without the full strength of the Panel (3 members) to hear the appeal, it is impossible to to hear appeals.
    • The situation is aggravated further by the increasing number of pending disputes before the appellate body.
    • India’s 2018 appeal in India — Iron and Steel Products, has been held up due to the body’s  “inability” to staff the panel because of the growing “backlog of appeals”
  • Crisis raised due to the USA's  and China’s action:
    • Appellate Body members are appointed by the WTO members by consensus, i.e. a decision is taken if no member formally objects. The US have announced that they will not remove their veto on the appointment of new Appellate Body members before the US concerns have been fully addressed.
    • The biggest budget contributor (The U.S.) to the WTO is fundamentally challenging the rules that govern international trade.
    • The US began to veto the appointment of new Appellate Body members because of its concerns regarding the allocation of powers and functioning of the WTO Appellate Body. 
    • The U.S. has attacked both allies and adversaries in an effort to redraw trade relationships.
    • The unilateral tariffs threatened by the U.S. and China don’t adhere to the WTO’s established procedures. 

Impact of Dispute Settlement Crisis:

  • If the tariffs trigger, it will inflame trade tensions that can’t be constrained by the trade body.
  • The National security clause used by the countries to increase the tariff exploits the loophole in WTO law that permits its members to take any action they consider necessary to defend “essential security interests”.
  • Most Countries may implement rulings by the panel even if they feel that gross errors have been committed.
  • The WTO could be sidelined if the panel continue to lack its original strength.
  • It will promote unilateralism & protectionism of the countries involved in ongoing Trade War.

India and WTO’s Dispute Settlement:

  • India is involved in multiple World Trade Organization (WTO) disputes at present.
  • These disputes pertain to measures concerning: Measures on non-immigrant visas, the importation of certain agricultural products, solar cells and solar modules, iron and steel products, export related measures, sugar and sugarcane and tariffs on ICT products, among others.

Impact of DSB Crisis on India:

  • It will hamper the timely resolution of India’s appeal on certain decisions of DSB.
  • In February 2019, WTO was unable to staff an appeal in a dispute between Japan and India over certain safeguard measures that India had imposed on imports of iron and steel products.
  • The backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year. The cases will further increase in the basket of Appellate Body.

India’s Steps in resolving the DSB Crisis:

  • India has been engaging with several WTO Members on the way forward at the WTO.
  • India has recently co-sponsored a proposal with the European Union and other members on reform of the dispute settlement mechanism addressing various challenges.
  • The proposal, inter alia, addresses various imperative issues of timelines, the appointment process of the Appellate Body members, their tenure and other conditions so that the Appellate Body and the Dispute Settlement Mechanism work more efficiently.

Way Forward:

  • Increasing the strength of Appellate Body (AB) members from the existing 7.
  • Changing the 4 Years term to the 6-8 year Single term.
  • Appoint by majority voting and not through consensus. 
  • It should exercise “judicial economy” while limiting itself to issues raised by parties.
  • Under no circumstances, it should  pronounce on issues which are not raised by parties to dispute.
  • WTO’s important principles, Security and predictability in the system and A reduction of global trade barriers, must be upheld.
  • The EU entered into two separate interim agreements with Canada and Norway to refer cases to an arbitral tribunal that reflects the Appellate Body.
  • New Zealand's Ambassador to the WTO suggested bringing several reforms to the Appellate Body, by taking into account both the concerns of the US and the positions of the other WTO members.

It is important to appreciate the role of WTO and its Dispute Settlement System. The robust Dispute Settlement Mechanism of the WTO ensures that the rules of global trade agreed at the forum are not breached by members. All member countries should prioritize it to resolve the issue amicably and strengthen the Rule-based order further.

References: 

Also Read:

‘WTO on Export Subsidies’
Collapse of WTO’s Dispute Settlement Mechanism


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